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James Grant of Grant’s Interest Rate Observer comments on today’s testimony by former Fed chief Alan Greenspan before the Financial Crisis Inquiry Commission.
Says Grant, “He has the lamentable personality trait of needing to be liked, which is not the best thing to have when you’re chairman of the Federal Reserve”.
I recently did an interview with John Thomas (a.k.a. The Mad Hedge Fund Trader) that is now available over at his Hedge Fund Radio website, so, if anyone’s interested in hearing what I sound like these days, this is your chance. Here’s the intro:
Tim Iacono, is a man who lives without stocks. He does this from a remote mountain top in rural Bend, Oregon, where he has the luxury of spending his days researching long term trends in the financial markets. Maybe it is the incessant rain that keeps him working indoors so long, sifting through the grains of data he pulls off the Internet.
Whatever Tim is doing, it is working. It was his spot on calls on precious metals and commodities during the “naughties” that has enabled him to live this sought after lifestyle. When his research led him to conclude that real estate was careening off a cliff, he sold his California properties and made the move north. His successes led him to launch a blog in 2005 and an investment website in 2006. Today, The Mess Greenspan Made boasts 26,000 followers at the aggregator site www.seekingalpha.com.
With the exception of the odd commodity producer or gold mining shares, Tim has completely avoided investing in paper securities for the past decade. He believes that stocks are still in a secular bear market that has at least a few more years to play out. When government stimulus runs its course later in the year we could be in for another downdraft as severe as the debacle that ensued in 2008-2009.
Maybe it’s me, but I didn’t think my outlook was quite that negative. It’s been a while since I’ve done any sort of an interview and this one was certainly fun as John not only has one of those smooth radio voices (even with a cold when we spoke), but he’s pretty funny too.
Wow. The former Fed chairman’s hindquarters must still be smarting after the tongue-lashing that Brooksley Born delivered about an hour ago at the Financial Crisis Inquiry Commission hearing (see here for other details of the meeting).
Brooksley Born: In your recent book you describe yourself as an outlier in your libertarian opposition to most regulation. Your ideology has essentially been that financial markets, like the OTC derivatives market, are self regulatory and that government regulation is either unnecessary or harmful. You’ve also stated that, as a result of the financial crisis, you have now found a flaw in that ideology.
You served as chairman of the Federal Reserve Board for more than 18 years, retiring in 2006, and became, during that period, the most respected sage on financial markets in the world. I wonder if your belief in deregulation had any impact on the level of regulation over the financial markets in the United States and in the world. You said that the mandates of the Federal Reserve were monetary policy, supervision and regulation of banks and bank holding companies, and systemic risk. You appropriately argued that the role of regulation is preventative.
But, the Fed utterly failed to prevent the financial crisis.
The Fed and the banking regulators failed to prevent the housing bubble. They failed to prevent the predatory lending scandal. They failed to prevent our biggest banks and bank holding companies from engaging in activities that would bring them to the verge of collapse, without massive taxpayer bailouts. They failed to recognize the systemic risk posed by an unregulated over-the-counter derivatives market and they permitted the financial system and the economy to reach the brink of disaster.
You also failed to prevent many of our banks from consolidating and growing into gigantic institutions that are now today too big and/or too interconnected to fail. Didn’t the Federal Reserve system fail to meet its responsibilities – failed to carry its mandate?
Alan Greenspan: First of all, the flaw in the system that I acknowledged was an inability to fully understand the state and extent of potential risks that were as yet untested…
Recall that Born was the former head of the CFTC whose quest to regulate over-the-counter derivatives in the late-1990s was thwarted by Alan Greenspan, former Treasury Secretary Robert Rubin, and current White House economic adviser Larry Summers.
I suppose it’s only fitting that the gold price may now be undergoing a major breakout from the “wedge pattern” of recent months – as it did last fall as indicated below – while former Fed chairman and master money printer Alan Greenspan testifies before the Financial Crisis Inquiry Commission (see this item from an hour or so ago for hearing info).
As this is written, he’s arguing that there is no way he could have reined in the housing and credit bubble back before they met their respective pins because, first of all, the Federal Reserve is not a regulator. Secondly, had he tried to prick the bubble, he would have been sharply criticized by Congress, a body that was then basking in the glow of record levels of homeownership and growing “wealth” (however transient) amongst the electorate.
Isn’t that the whole point of having an “independent” Federal Reserve? To do things that Congress and the White House may not like but, as was certainly true in this case, would have been better for the economy in the long run?
Commission Chairman Phil Angelides just provided the first warning to former Fed chairman Alan Greenspan about rewriting history in his testimony today (see the last post for FCIC hearing details). As they move further into what is likely to be a long morning, here are some thoughts from Caroline Baum at Bloomberg from earlier today.
In case you missed the first legacy tour, former Federal Reserve Chairman Alan Greenspan is back for Part II.
Starting with an academic paper presented at the Brookings Institution on March 19 and followed by several TV interviews, “Dr. Greenspan,” as his interviewers politely refer to him, has acquired the clairvoyance he lacked at the Fed.
Asked in a Bloomberg TV interview about a possible bubble in China, Greenspan said there were “significant bubbles in Shanghai and along the coastal provinces” and “some of that in the hinterlands.”
He of the Can’t-See-a-Bubble-In-Advance School now recognizes region-specific bubbles halfway around the world?
…
Could anyone have been more wrong about so many things than Alan Greenspan? And now he has the chutzpah to rewrite history? He will certainly give it another whirl at today’s hearing of the Financial Inquiry Crisis Commission.To his credit, Greenspan warned about the bloated balance sheets of Fannie Mae and Freddie Mac. And he sniffed out the increase in productivity growth in the 1990s — and then did nothing to raise real interest rates.
Greenspan can command high fees for speaking engagements and consulting work for select clients. He cannot write his legacy. History will do that for him.
There’s lots more in this story about interest rates and related issues, all of it familiar ground at this point. As for the hearing – now about 45 minutes in as we hear “if we get it right 75 percent of the time, that is exceptionally good” and the first reference to the Berlin Wall as the root cause of the crisis – re-writing history appears to be the theme of the day.
They are just getting underway over at the FCIC (Financial Crisis Inquiry Commission) on the first day of a three-day hearing on subprime lending and mortgage securitization. Up first is witness #1 – former Fed chairman Alan Greenspan shown below being sworn in.
Today’s session is being broadcast live on C-SPAN2 and, sadly, after just a few minutes of the former Fed chairman’s opening statement, it appears as though we’re about to see revisionist history on a scale perhaps never witnessed before by mankind (Note: Greenspan’s prepared remarks are available here(.pdf)).
By Tim Iacono, Since 2005
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